MCA Revises the Definition of “Small Companies”

Unicorns and startups are always in the spotlight. While they have contributed to the growth and development of the economy, brought in foreign investments, and put India on the global map, small companies cannot be disregarded as they play a significant role in the economy.

What exactly do we mean by small companies?

Under the old rule, a company was considered small if its paid-up capital was less than INR 2 crores and its turnover was less than INR 20 crores. MCA however has altered the definition of small company to give more companies the leeway that small companies have. 

The revised paid up capital and turnover limits reads as follows:

  • The threshold limit for paid-up capital has now been capped at ₹4 crores; 
  • The turnover limit has been capped at ₹40 crores 

What are the exemptions/benefits available to small companies?

Type of Entity Small company Private Limited Company
Annual Returns To be filed in Form MGT-7A. Signed by the company secretary (CS) of the company or the director if there is no CS To be filed in Form MGT-7. Digitally signed by the director and certified by a Company Secretary (in whole time practice). Filed within 60 days from the date of the Annual General Meeting. A practising CS and a Director must sign the returns.
Abridged Forms Forms like the Directors Report, Board Report shall be in Abridged Form. This means a detailed description of activities and facts need not be maintained. Exhaustive information must be captured in the Directors and Board report.
Indian Accounting Standard The financial statements need not be prepared according to the Indian Accounting Standards The financial statements must be prepared as per the Indian Accounting Standards
Board meetings The board meeting must be held twice a year with not less than 90 days gap between the meetings. Minimum 4 Board meetings must be held every year in such a manner that not more than one hundred and twenty days shall pass between two consecutive meetings of the Board.
Auditors Auditors rotation not mandatory Auditors must be rotated based on the threshold limit specified under the Companies Act.
Financial statements and annual returns Need not prepare the cash flow statement Cash flow statements must form part of the financial statements of a company.
Companies (Auditor’s Report) Order, 2020 Not applicable Not applicable

Make sure to periodically keep a watch on these rules to ensure that your company still qualifies to be a small company.  This is because once the threshold limits exceed, the small company status and related benefits are no longer applicable. 

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